paranoid theory of the week :: was the greek financial crisis actually planned?

a word of advice: don't try to teach yourself macroeconomics on a hot night when you have insomnia. it just doesn't work.

i'd been boning up on the world of international finance in anticipation of today's referendum in greece on whether or not to accept the terms of a new bailout package proposed by the european union, the european central bank and the international monetary fund [known collectively as the "troika"]. of course, writing this on sunday evening in montreal, the results of that referendum are already well-known: greeks have voted to reject the creditors' proposal by an overwhelming margin- far more than expected. [as far as finance is concerned, i have a lot more boning to do.]

the saga of the greek financial crisis has played out with the expected sort of media coverage: marginal at best in mainstream north american media, solidly pro-troika in the western european press [the bbc really cnn'd themselves in their coverage this afternoon, with a couple of correspondents coming close to fighting with the "average greeks" they were interviewing] and solidly anti-troika in the alternative press [mother jones, slate, etc.]. there are dozens [at least] of articles that "explain" the greek financial crisis, and unfortunately for those of us who haven't been studying it closely for many years, the only way to even start to make sense of what's going on is to read all of them, because most of them are partial truths informed by the point of view of the writer and/ or publisher behind them. and while you're reading every single article on the subject, you're also going to want to do some pretty intensive studies on twentieth century european history, because 90% of the analyses you find now start looking at the roots of the problem no earlier than the year 2000 [and most of those start with the financial crisis of 2008, because apparently nothing of any bearing on current events happened before then].

given the paucity of balanced information and the complexity of the issues involved, it's no wonder that lots of conspiracy theories have flourished regarding the current financial crisis and the possible "grexit" [greece exiting the european union and dropping the euro as a currency]. and flourish they have. it's not uncommon for large news organisations to reference these theories, at least as a way of explaining resentment against the e.c. and the troika. so i thought i'd offer a quick look at the arguments being mooted, which is the least i can do until i manage to teach myself macroeconomics.

the theory ::

the current greek financial crisis was engineered by the very people with whom the government is now forced to negotiate- the european union, the european central bank and the international monetary fund.

the origin ::

all over the place following the financial collapse of 2008. when it became clear that a number of european countries, greece chief among them, had far greater debts than had previously been realised, and far fewer resources with which to repay them. this article, published in the french newspaper le monde in 2010 is an early example of a critique alleging that the crisis was planned.

the believers ::

more than 75% of greeks, for starters. this is one theory that tends to rope in more people on the left of the political spectrum, although libertarians suspicious of large banks and their involvement in governments give it some credence as well. but this isn't a conspiracy of the fringes: when 75% of the people agree on something, it's bound to include a lot of people from the political centre. indeed, composer mikis theodorakis, a moderate leftist who also cooperated with the centre-right coalition government of constantine mitsotakis penned a famous "open letter to international public opinion" claiming an anti-greek conspiracy in its first five words. [his letter is dramatic, but one of the few explanations that reaches further back than greece's entrance into the european union in examining the roots of the current crisis.]

the bad guys ::

the troika of the european union, the european central bank and the international monetary fund [in case you missed that when i said it earlier]. there is a particular vitriol reserved for german chancellor angela merkel, who has become the troika's public face.

the evidence ::

everywhere and nowhere, depending on who you listen to. no one is claiming to have discovered a "smoking gun", that establishes that neo-liberal european leaders like merkel, former british prime minister tony blair and former french president nicolas sarkozy colluded with the imf to force greece to the point of insolvency. but no one expects that anyway.

what is in question is whether or not it is logical or even plausible to engage in a linear regression from the aftermath of the 2008 financial crisis- which is not the origin of the current greek financial crisis but it is the immediate cause- and to determine that the disaster was planned.

in order to restore stability, most large banks were bailed out by their governments. that allowed them access to capital they would not otherwise have had during the worst of the crisis. seven years later on, many of those same banks are collecting from those who were most indebted by that same financial crisis, including the greek government. [it's a misunderstanding that the funds advanced to greece are being used by the greeks. they're mostly just handed off to those to whom they owe money, a point made by nobel prize winning economist joseph stiglitz.]

so, given that the banks were able to count on governments to see them through the worst of the collapse and that they've been able to profit from debts accrued by other governments in the years since, it doesn't seem unreasonable to suggest that the 2008 collapse was beneficial for a lot of financial institutions. and from there, one could say that planning such a collapse wouldn't have been such a bad idea.

but that doesn't mean it happened. it's always dangerous to make retroactive assumptions based on how things turned out and this is one of those times. there isn't a lot to suggest that the financial industry was concerned about much beyond their next quarterly reports to investors and that they simply let things get out of control.

i actually used this photo before, but i love it...

the arguments of leftists [see the translated article from le monde above] is that forcing austerity plans onto governments in countries like greece, spain and portugal is actually a way of eroding the social welfare networks that are anathema to neo-liberal capitalism. there is a lot of attention paid to the fact that austerity measures have forced greece to face down its significant tax evasion problems [although the measures put in place by the troika emphasize tax collection on the poor and middle classes, not the wealthy and not corporations], but the flip side of that is the drastic reductions in government spending. that means less money spent on health care, education, transportation, pensions and [this one always gets left out] government oversight bodies like food inspectors, auditors and environmental protecition services. instead, greece has been told to privatize, to hand the work over to groups who will be able to run them profitably. in other words, a political goal is accomplished under the auspices of financial responsibility.

but the fact that social welfare is being cut back doesn't mean that it's part of a larger plan. it could just as easily be the quick solution proposed by a group of people who don't want to spend a lot of time thinking about the issue and who want to project an active, empowered image to their voters and/ or investors. [which seems to be working: 69% of germans feel that angela merkel, whose party had suffered significant losses during the last federal election, has done a good job in handling the greek financial crisis. this despite the fact that a lot of economists believe the troika austerity plan was a fatuous disaster from the start.]

this is the sort of back and forth that this sort of conspiracy always elicits: there is a pattern in which some always benefit while others suffer. is it planned that way? good luck proving it.

the likelihood :: 4/10

if the argument is that a group of the financial and political elite sat in a room and thought that the best way to undermine social welfare was to devastate the world economy and draw everyone's attention to the malfeasance of the world's financial sector and the impotence of national governments before them, i'm not buying it. no, the global financial crisis still strikes me as a cock-up of epic proportions, one that has made people prone to doing things like electing leftist governments who enjoy considerable popular support because they defy the elites.

however, if you want to make the case that banks and governments have taken advantage of the financial crisis in order to make short-term gains for themselves and to press unwilling others into conforming to their ideology, i'm right there with you.

does that a conspiracy make? well, it's kind of a piecemeal conspiracy at best: it's not a master plan, more of a quick reflex. these are already groups who have the odds stacked significantly in their favour, so it shouldn't be entirely surprising that they're able to turn a bad situation to their advantage. nor should it be surprising that they should seek to do so: our economic system rests on the principle that the whole is best served by individuals acting selfishly. people in positions of power who, when threatened, opt to say "let's think about this for a minute" do not remain in power long.

in the final analysis, there is something to the suspicions. but to paraphrase hanlon's razor: never attribute to conspiracy that which is adequately explained through single-minded self-interest.

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